Whether the "clang, clang, clang" of the stock market's opening bell Monday signals an outright alarm or simply the start of another round of jabbing and ducking is anybody's guess.
Traders had the weekend to consider the flurry of selling Friday that pushed the Dow Jones industrial average, the stock market's best-known index, down 171.24 points, its third-worst point decline ever. Bond prices plunged too, in their worst one-day performance in almost 20 years.The Dow's drop almost immediately brought comparisons to the crash of 1987, when a 108-point decline on Oct. 16 - a Friday - preceded the 508-point Oct. 19 meltdown that became known as Black Monday.
Many Wall Street analysts, who spent the weekend furiously trying to piece together the cause and effect of Friday's decline, say Monday should not bring another drop like 1987. They're less sure, however, just what it will bring.
In other words: Get ready for anything.
"I don't hear of much in the way of panic - obviously, we've been on the phone over the weekend talking to various financial types," said A. Michael Lipper, president of the research firm Lipper Analytical Services Inc.
"I don't think Monday will be historically bad," he said, "but that doesn't mean it won't go down."
Down is the last thing many investors want to hear.
Precipitating the Friday sell-off was a government report showing the nation created 705,000 jobs in February, the biggest gain since 1983. Traders figured the news of a stronger economy would keep the Federal Reserve from cutting interest rates in the near future.Expectations of lower interest rates have been a main underpinning of the remarkable rise in the financial markets that carried the Dow average up more than 30 percent last year. Lower rates help boost corporate profits and make stocks and bonds more attractive than other interest-bearing investments like savings accounts.
One thing market analysts worked to figure out over the weekend was the nature of the down draft. Was it simply a blip or the beginning of a "correction," a loosely defined term meaning a pullback in prices that allows an overall advance to continue?
"I think that's what we have going on here, a correction within the theme of an ongoing up trend," said Eugene Peroni, director of technical research at Janney Montgomery Scott, a brokerage firm.
Wall Street generally defines a correction as a decline in stock prices of 10 percent or so. The Dow's drop Friday to 5,470.45 represented just a 3 percent decline, so analysts like Peroni figure there's more to come. Though, they say, not all in one day.
The Dow's most recent record high came last week at 5,642.42, which means a 10 percent correction would bring the average back to a bit over 5,000 - a level the market cracked only four months ago.
"I think that's healthy," said Sung Won Sohn, chief economist at Norwest Corp., a banking company. "If it keeps going up, sooner or later there would be a crash." For comparison's sake, the Oct. 19, 1987, crash took the Dow industrials down about 23 percent.
The blast that shook the stock market Friday also rumbled through the Treasury bond market.
Concern about the Fed not cutting rates sent prices plunging, with the benchmark 30-year bond losing $30.94 for each $1,000 invested. Its yield, which moves in the opposite direction, rose about a quarter point to 6.72 percent.
The increase in bond yields, if it lasts, has serious ramifications for individuals. Bond yields are the guidepost for a range of important loan rates, notably mortgages.